What are the tax rules on gold bonds, understand in detail
The process of filing Income Tax Returns (ITR) for the assessment year 2026-27 (financial year 2025-26) is in full swing. If you have also invested in the Sovereign Gold Bond (SGB) scheme of the Reserve Bank of India (RBI) and earned from it, then this news is very important for you. Many taxpayers do not report SGB income correctly while filing ITR, due to which they have to face tax notices from the Income Tax Department later. Let us know what are the tax rules on Sovereign Gold Bond and how you have to show it in your return.
Income from SGB: Understand the tax rules in two parts
Investors earn from Sovereign Gold Bond in two ways – first, the annual interest and second, capital gains when the price of the bond increases. The tax rules on these two are completely different:
1. Tax on interest received annually
- Investors get interest at the rate of 2.5 percent per annum on Sovereign Gold Bond, which is deposited directly into your bank account twice a year (on half yearly basis).
- Tax Rules: This interest is fully taxable. It gets added to your annual income and is taxed as per your tax slab.
- Where to show in ITR: It is mandatory to declare this in the ITR form under the head ‘Income from Other Sources’.
- Important point: RBI does not deduct any TDS (Tax Deducted at Source) on this interest, hence many investors forget to show it in the returns. This is a big mistake because this transaction is recorded in your AIS (Annual Information Statement).
2. Tax on maturity and capital gains
SGB is considered to be the best investment from tax point of view, but there are some conditions for it:
- On maturity of 8 years: If you hold the Sovereign Gold Bond for the full maturity period of 8 years, the entire capital gains at the time of redemption are 100% tax-free. You do not have to pay even 1 rupee tax on this.
- Premature Redemption after one year: Individual investors also get exemption from capital gains tax if they make pre-mature redemption directly with RBI after 5 years.
- Sale on Stock Exchange: If you sell your SGB on the stock exchange (NSE/BSE) before the completion of 8 years, the profit will not be tax-free. Depending on the holding period, it will be subject to short-term (STCG) or long-term capital gains (LTCG) tax.
How to give information about income from SGB
All transactions relating to SGB will have to be reported in the respective schedules given in ITR-2, ITR-3 or ITR-4, depending on the case. The 2.5 per cent annual interest received on SGB is fully taxable and its information has to be given in ‘Schedule OS’ (Income from other sources).
This interest is taxed as per the applicable income tax slab of the investor. Since government securities are exempted from TDS (Tax Deducted at Source) under Section 193 of the Income Tax Act, no tax will be deducted at source on this interest.
Reporting of capital gains depends on how the bond is sold or redeemed. If the original subscriber redeems the bond with the Reserve Bank of India (RBI) on maturity, the capital gains will not be taxed under the rules applicable for assessment year 2026-27.
Don’t make these 3 mistakes while filing ITR
- Not cross-checking AIS and TIS: Before filing the return, download your Annual Information Statement (AIS). The interest given to you by RBI is already visible in it. If there is a difference between your ITR and AIS data, an automatic notice may come.
- Hiding bonds sold on the exchange: If you have sold SGB through the stock market before maturity, then enter it in ITR under ‘Capital Gains’ schedule. Calculate it taking advantage of appropriate indexation or tax rate as per the rules of listed securities.
- Not showing tax-free maturity amount: Even though the money received after completion of 8 years is completely tax-free, it should still be reported in the ‘Exempt Income’ schedule of ITR so that the correct details of your total assets and earnings remain with the department.
Must follow the rules
In this era of digital tracking, the Income Tax Department has accurate information about your every financial transaction. Therefore, by showing the interest received from Sovereign Gold Bond in ‘Income from Other Sources’ and reporting the maturity profit as per the rules, you can avoid any kind of tax hassles and penalties. If you have more than one bond series, it is better to match your bank statement and SGB holding certificate before filing.
Changes in Budget 2026 will come into effect from next year
An important change in Budget 2026 is that exemption from capital gains on redemption of Sovereign Gold Bonds will be available only to ‘original subscribers’ (initial buyers) who had purchased or invested in the bonds at the time of their issue by the RBI and held them till maturity.
Additionally, investors who have purchased SGBs from the secondary market will no longer get this discount. As a result, any gain arising from redemption of such Sovereign Gold Bonds will be taxable and will have to be reported under Scheduled Capital Gains.
However, these changes will be applicable only from assessment year 2027-28, when the new Income Tax Act, 2025 will be fully implemented. Reporting interest and capital gains on Sovereign Gold Bond as per the correct schedule will help in ensuring correct tax filing and avoiding unnecessary notices and legal complications.
